Nine major lenders agreed to accept the preferred government stock investments, which are limited to $25 billion per lender. The injections come as regulators worldwide scramble to unfreeze a financial system paralyzed by worries over capital, liquidity and the potential for a global economic recession.

NEW YORK (Reuters)
- Bank stocks soared on Tuesday after the government set plans to
inject $250 billion into the battered sector, where exposure to toxic
mortgages and other debt has pummeled investor confidence and share
prices.

Nine major lenders agreed to accept the preferred stock investments,
which are limited to $25 billion per lender. The injections come as
regulators worldwide scramble to unfreeze a financial system paralyzed
by worries over capital, liquidity and the potential for a global
economic recession.

"This clearly adds an immense backstop against the prospect of the
largest of the financials falling into capital inadequacy," said
Gregory Miller, chief economist at SunTrust Banks Inc in Atlanta. "The
kindest of us would suggest that it's a necessary evil."

The 24-member KBW Bank Index .BKX rose as much as 13.6 percent and
was up 9.7 percent in early afternoon trading. Credit spreads on
lenders' debt also tightened, suggesting that investors perceive less
risk of default.

"In recent weeks, the American people have felt the effects of a
frozen financial system," U.S. Treasury Secretary Henry Paulson said at
a news conference. "Today's actions are not what we ever wanted to do,
but today's actions are what we must do to restore confidence to our
financial system."

Funds will come from the $700 billion taxpayer-funded bailout
package that President George W. Bush signed into law earlier this
month.

UNCLOGGING THE SYSTEM

"Hopefully, this strong approach is the dynamite needed to blast
through the clogged-up financial system," said Sen. Chuck Schumer, a
New York Democrat.

New York is home to six of the nine initial recipients of the capital injections.

Separately, the Federal Reserve set plans to begin buying large amounts of short-term debt starting on October 27.

The Federal Deposit Insurance Corp, meanwhile, said it will
guarantee through June 30, 2012, new senior unsecured debt issued on or
before June 30, 2009, and also back non-interest bearing deposit
accounts that businesses typically use.

Regulators in Europe have pledged more than 1 trillion euros ($1.37
trillion) in direct capital injections for banks on that continent, and
to help underwrite lending.

"We will be looking today to an absolute sea change in the global
financial system in terms of liquidity," Stephen Schwarzman, chief
executive of the private equity firm Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz), said at a Dubai investor conference.

Moody's Investors Service analysts Gregory Bauer and Robert Young
said the $250 billion is equal to about one-fourth of all equity
capital of the U.S. banking system. "This is a massive amount of fresh
capital that now is reliably available to restore the health of the
firms' balance sheets," they wrote.

Citigroup analysts, meanwhile, raised ratings for 14 U.S. banks to "buy" from either "hold" or "sell."

DAMAGE ALREADY DONE

But the capital injections do not free banks from problems tied to
mortgages, consumer and business credit, and illiquid debt expected to
persist well into 2009 or longer. Through Monday, the KBW index was
down 37.3 percent this year.

"There's been damage done," said Jim Awad, chairman of W.P. Stewart
& Co in New York. "We'll see that when companies give their
third-quarter results and provide fourth-quarter outlooks."

Analysts expect JPMorgan and Wells Fargo to report lower
third-quarter results on Wednesday. Most major U.S. lenders are
scheduled to report quarterly results by the end of next week.